Table of Contents
AFTERMATH OF THE FIGHT OVER FIDUCIARY ACCESS TO DIGITAL ASSETS: THE REVISED UFADAA AND ITS IMPLICATIONS FOR LEGISLATORS AND PROFESSIONAL ADVISORS
What happens to your emails, social media accounts, domain names, online stores, blogs, and Bitcoins if you are not able to manage them? Digital accounts and digital assets, some of which have substantial financial value, are becoming more and more popular with each passing day. Unfortunately, legislators in many states have not addressed fiduciary access to digital assets should the account holder or owner become incapacitated or pass away. Even the few states that adopted such legislation prior to 2015 were years behind digital advancements, which limited the statutes’ effect on fiduciaries and estate administration. Recognizing this need, as well as the discrepancies in current legislation, the Uniform Law Commission drafted the original Uniform Fiduciary Access to Digital Assets Act (UFADAA) to grant fiduciaries access to digital assets. Major e-commerce companies, social media companies, email providers, and civil liberties groups (collectively referred to as the “Providers”), and their trade organization, NetChoice, opposed the original UFADAA by sending letters of opposition to state legislators that had introduced a bill on the topic. After drafting their own limited provision on fiduciary access to email communications, NetChoice entered into negotiations with the Uniform Law Commission.
The result of these negotiations is the Revised Uniform Fiduciary Access to Digital Assets Act (Revised UFADAA), released late in the 2015 legislative session. The Revised UFADAA maintains its applicability to a broad range of digital assets and fiduciaries, while at the same time addressing NetChoice concerns over potential violations of federal law and leeway for service providers. Some states adopted the Revised UFADAA in the 2016 legislative session; however, there are a number of states that are still ignoring fiduciary access to digital assets altogether. Even states that have adopted limited provisions have to consider the clarification and protections that the Revised UFADAA brings to both fiduciaries and Providers. If adopted, estate planners and tax advisors have to identify digital assets owned by clients and incorporate provisions of the statute into their clients’ planning. State adoption of the Revised UFADAA, along with incorporation of digital assets into traditional estate and tax planning, will prevent identity theft of clients, preserve estate assets, and ease estate administration. More importantly, this combination of legislator and professional advisor action will ensure that the digital asset owner’s intent is effectuated upon his or her incapacity or death.
REVIVING TRANSFER PRICING ENFORCEMENT THROUGH FORMULARY APPORTIONMENT
The international tax system is fundamentally flawed and large multinational enterprises exploit these flaws to drastically reduce their effective tax rates. Data indicates that the most powerful tool for multinational enterprises to reduce their tax liabilities is arm’s-length transfer pricing. The arm’s-length standard is a relic forced upon the world until it became the norm for most countries. An attractive alternative to arm’s-length transfer pricing is transfer pricing based upon formulary methods. Though imperfect and maligned by the Treasury and practitioners, formulary apportionment goes a long way in alleviating the problems created under the arm’s-length standard, including its inability to address the intercompany pricing of intangibles.
The global financial crisis of 2007-2008 created a unique opportunity to address this flaw in the international tax system. In the wake of the crisis and through a slow economic recovery, politicians across the world grilled multinational enterprises for their exploitation of weaknesses in the international tax regime and called on the OECD to take action to strengthen it. In 2013, the OECD responded with an ambitious Action Plan and followed up with bold discussion drafts that hinted at an embrace of formulary methods when transactional methods proved insufficient. Disappointingly, the OECD backed away from this position in its final transfer pricing reports in 2015 due to immense pressure that largely came to the United States. The OECD’s final reports reaffirm its adherence to the arm’s-length standard and promulgated a watered-down version of country-by-country reporting. The door is closing fast for the OECD to make the changes necessary to address one of the greatest weaknesses of the current international tax regime.
Paul A. Blay, Esq.
PEOS, CERTIFIED PEOS AND FEDERAL EMPLOYMENT TAXES - WHY THE IRS CERTIFICATION PROGRAM IS NOT ENOUGH
In December 2014, after nearly 15 years of lobbying efforts by Professional Employer Organizations (PEOs), the Small Business Efficiency Act (SBEA) was enacted into law. The SBEA authorizes the Internal Revenue Service (IRS) to create a certification program for PEOs and formally incorporates the role of certified PEOs into the federal employment tax regime. Proponents of the SBEA have generally lauded the legislation as substantially beneficial to client companies as it enables client companies to rely increasingly on PEOs to support growth. This article provides (1) an introduction to the typical PEO relationship and the current law that governs federal employment tax liability and filing requirements when a client company partners with an uncertified PEO, including identifying concerns with the current law and structure, (2) a summary of the SBEA and federal employment tax liability as it applies to certified PEOs, highlighting some of the benefits of the SBEA, (3) the identification of various and perhaps troublesome issues with respect to federal employment tax liability that remain after passage of the SBEA and implementation of the IRS PEO certification program, and finally (4) an outline of four steps that could be taken, alone or in combination, to address these issues by protecting client companies that utilize PEOs from unanticipated federal employment tax liability and reducing the opportunity for tax fraud on the part of PEOs.